The Alberta Court of Queen’s Bench decision in Bexson v. Williams, [2014] AJ #713 was the first time an Alberta court interpreted and applied Section 581 of Alberta’s Insurance Act, RSA 2000, c I-3 and Section 5.6 of the Fair Practices Regulation, Alta Reg 382/2003. Those provisions give the Court discretion to order a defendant’s insurer to make payment to a claimant in advance of judgment (an “advance payment”).

On November 24, 2014, the Alberta Court of Appeal released its decision in Shannon v. 1610635 Alberta Inc., 2014 ABCA 393 (“Shannon”) and set out the new legal test for advance payments in Alberta.

In Shannon, the Plaintiff / Claimant was injured in a motor vehicle collision and applied for advance payments on the basis that he had no money, no way to raise money, and was unable to work at his usual employment. The Claimant was also in the unusual situation of owning out-of-province land that could not be borrowed against. The Chambers Judge granted an order for the Claimant to receive a lump sum advance payment and smaller monthly advance payments. However, the judge also ordered that the Claimant’s land be mortgaged to provide security for repayment of any advance payments that would be above the ultimate trial award or settlement.

Justice Côté of the Court of Appeal affirmed the Chamber Judge’s decision and clarified the legal test to be followed in applications for advance payment.

First, Justice Côté found that the Claimant must meet, on a balance of probabilities, the following two preconditions:

  1. That the Insurer is probably liable to the Claimant for the amount of advance payments that are being sought (or more); and
  2. Without that payment, that the Claimant is likely to go without necessities of life (or things broadly analogous) or is unlikely to be able to prosecute his or her claim for damages.

Second, if the Court is satisfied that those two preconditions have been met, a comparative analysis will be conducted to weigh the Claimant’s financial risks and the Insurer’s financial risks. With respect to the Claimant, the Court will examine the likelihood that the Claimant will lose the necessities of life or will be unable to prosecute his or her claim, as well as the extent of the Claimant’s likely loss (eg. the monetary amount of the claim). With respect to the Insurer, the Court will examine the Insurer’s risk of making an overpayment to the Claimant, as well as the likely extent of that overpayment.

Put simply, the Court will weigh the potential prejudice that the Insurer and the Claimant may suffer in the circumstances, and determine whether that supports or opposes an order for advance payment. Justice Côté emphasized that this comparative analysis does not require precise calculations, and instead found that a “rough comparison” will suffice.

Finally, if an order for advance payment is granted, the Court should consider imposing terms and conditions on the payment. This may include a written covenant or undertaking by the Claimant to repay the Insurer any ultimate overpayment, with interest; imposing an expiry date for periodic advance payments; or requiring the Claimant to provide the Insurer with any available security for the payment, as the Court ordered in Shannon.

As the Court of Appeal’s legal test in Shannon still provides the Court with a considerable amount of discretion, particularly with respect to the comparative analysis of the parties’ financial risks, it will be important to monitor how the test is applied in subsequent cases with varying factual difficulties.

What this means to you?

As the Alberta Court of Appeal has now established the legal test for advance payments, it is likely that more claimants will be applying for advance payments from defendants’ insurers, when appropriate.

If advance payments are warranted, insurers should protect their interests and mitigate their risks by imposing terms and conditions. Claimants should always be required to provide a covenant or undertaking to repay any overpayment, plus interest; an expiry date should be set for periodic advance payments, or a date should be set to re-assess the amount and frequency of the advance payments; and insurers should also fully explore whether a claimant can provide any form of security in exchange for the advance payments.

This post is intended to provide general information concerning developments in the law and is not intended to provide legal advice in respect of any particular situation.